Commodity traders hang on U.S. Department of Agriculture reports as the gospel events that define markets and must be respected. Last week’s reports, however, contained no surprises.
They seemed to cause no changes in price action, and analysts were stuck examining the minutia contained in them for reasons to see potential reaction eventually. Commentators had predicted that the reports would be a non-event, and they were correct.
In a season long on winter and with few reasons for market movement, there was hope for some nuggets of knowledge. Yes, the ethanol grind would continue to increase. But, usage there would be offset by a drop in exports.
Soybean supplies from South America were changed dramatically, but that was already in the market in the form of long-term weather affecting the crops there.
They have been too wet in northern Brazil and too dry elsewhere, down into Argentina. That the crop does not need all the rain it normally gets has been ignored, but now the shortage is generally viewed as significant.
The big change in corn came as we saw divergence between the 2022 corn crop and the 2023. While March ’22 corn futures, our “nearby” contract, lost a dime on the week, the December ’23 futures made a new contract high. The high came Jan. 13 at $5.43.
It is encouraging that next year’s crop is gaining, as it gives us hope that we can have high prices for several years.
Unfortunately, high fertilizer prices have caused us to wonder if we can be profitable, even at these levels. At the same time that the new high was made, however, we saw nitrogen fertilizer prices decline, so there are unknowns ahead of us.
Crude oil prices
We are seeing the highest prices on crude oil in the last eight years now. Crude oil in the ’80s should mean a return to high production in this country, but so far that is not true.
Speculation is that oil producers are so spooked by negative politics affecting their business that they are still shy about committing to full production.
Meanwhile, high petroleum prices results in high cost for production of nitrogen fertilizer, which leaves us wondering about the cost of production.
Since fertilizer production in the near term is more for the ’23 crop, there is a relationship between fertilizer prices and ’23 production. It is just hard to predict why we are now seeing that as higher prices.
Soybean prices are hard to rationalize in view of current circumstances and significant change in the USDA view. We have dropped the South American crop prospects by 9 MMT. That is equal to 330 million bushels. Yet, soybeans dropped 30 cents last week.
Blame that on an ending stocks number that keeps creeping up in each report. Blame it also on current weather that is seen to hold off the worst predictions for the crop. The current forecast for South America is for above average rain over the next two weeks.
In the December report, we saw carryout climbing to 350 million bushels for the end of this marketing year. That is up from just 155 in the August report. Once again, it is the 2023 new crop soybeans that made a new high while the current year languished.
On Jan. 14, we touched $12.533⁄4. We were back to $12.31 the morning of Jan. 18, but the rally was encouraging.
The wheat markets have continued the slide that seems to indicate that the party, driven by spring wheat problem, is over. Minneapolis spring wheat was down 45 cents. The Chicago market that we use was off 17 cents.
We have done significant chart damage with this recent revision in prices. We have also had other bad news to absorb.
Exports were disappointing this week, and the wheat tender to Iran that has been talked about, then discounted for three weeks was now realized, but not to us. Origins will be from other countries.
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